Installment and hire purchase are both methods of purchasing goods or assets over time, but they differ in terms of ownership and payment structure.
1. Installment Purchase:
- In an installment purchase, the buyer makes a series of regular payments (installments) over a specified period until the total purchase price is paid off.
- The buyer owns the item from the beginning of the installment agreement.
- Once all payments are made, the ownership of the item is transferred to the buyer.
- Example: Purchasing a car through an installment plan where the buyer pays a fixed monthly amount for a certain number of months until the full purchase price, plus any interest, is paid off. The buyer owns the car from the start of the agreement and can use it as they wish.
2. Hire Purchase:
- In a hire purchase agreement, the buyer agrees to pay for goods in installments over a period of time.
- Unlike an installment purchase, the buyer does not own the item until the final payment is made.
- The buyer essentially hires the item from the seller until the full purchase price is paid off, hence the term "hire purchase."
- Ownership is transferred to the buyer only after the final payment, typically known as the "option to purchase" fee, is made.
- Example: Financing a household appliance like a refrigerator through hire purchase. The buyer pays regular installments to the seller, but the seller retains ownership until the final payment is made. Once the last payment, including any final fee, is completed, ownership transfers to the buyer.
In summary, while both installment purchase and hire purchase involve paying for goods over time, the key difference lies in ownership. In an installment purchase, the buyer owns the item from the beginning and pays it off over time, while in a hire purchase, the buyer hires the item until the final payment is made, at which point ownership transfers to the
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